MACROECONOMIC NEWS ANNOUNCEMENTS, US PUBLIC COMMUNICATIONS AND EMERGING CURRENCY MARKETS DURING THE POST-GLOBAL FINANCIAL CRISIS

Abstract

In this study, we examine the relationship of foreign and domestic macroeconomic news announcements and US public communication from senior officials in the Federal Reserve and the US Department of the Treasury with high-frequency exchange rates in 5 emerging currencies over 2010-2017. To be more specific, we investigate the impact of the announcements and communications on return, volatility and price discontinuity (jump) of the emerging currencies. First, we study the return and volatility reaction to the announcements and communication releases, and then analyze the effects of those announcements and communications on jumps and cojumps. We find that a great majority of the announcements and communications have strong impacts on return and volatility, however, only a few of them can trigger jumps and cojumps. Effects of communications and European announcements specifically are more pronounced and consistent on return and volatility adjustments than on jumps and cojumps. Though less in number, US and domestic macroeconomic news announcements consistently affect jumps and cojumps across most of the emerging currencies. Like in previous studies, we observe in ours that currencies are most sensitive to US announcements. Though previous studies cannot establish any significant relationship with domestic announcements, we evidence that currencies have become very responsive to domestic announcements after the global financial crisis in 2008. Most important US announcements, when it comes to affecting return and volatility, are FOMC rate decisions, FOMC meeting minutes, non-farm payrolls, CPI, GDP, ISM, PPI, retail sales and unemployment rates. Jumps and cojumps, on the other hand, exhibit tendency to respond significantly to FOMC rate decisions, FOMC meeting minutes, non-farm payrolls and CPI out of all the US announcements. With regards to domestic announcements, releases on central bank’s rate decision, CPI, trade balance and bond trading are very important.